German Chancellor Merz Backs EU Plan for $164 Billion Ukraine Loan from Frozen Russian Assets

Germany Shifts Stance on Frozen Russian Assets

German Chancellor Friedrich Merz has announced his support for a European Union plan to provide Ukraine with a substantial interest-free loan, backed by frozen Russian state assets. The proposal, detailed by Merz in a recent Financial Times editorial, suggests a loan of approximately $164 billion (€140 billion) to bolster Ukraine's defense capabilities. This move represents a notable change in Germany's previously cautious position regarding the use of these assets.

Chancellor Merz, who assumed office on May 6, 2025, emphasized that the initiative aims to 'systematically and massively raise the costs of Russia's aggression' and provide a 'new impetus to change Russia's calculations.' The plan seeks to provide long-term financial support for Kyiv without directly confiscating Russian state assets, a measure that had previously raised legal and financial concerns among some EU member states, including Germany.

Details of the Proposed Loan Mechanism

Under the plan advocated by Chancellor Merz, Ukraine would receive an interest-free loan that would only be repaid once Moscow compensates Kyiv for wartime damages. Until such reparations are made, the Russian assets would remain frozen, as decided by the European Council. The funds are specifically intended for the purchase of military equipment and to strengthen Ukraine's military resilience for several years, rather than for its general budget.

The proposal suggests that the loan would initially be guaranteed by EU member states and subsequently secured by collateral from the bloc's long-term budget starting in 2028. This mechanism is designed to address concerns about intervening in property rights, a key hurdle that had made Germany and other EU nations hesitant to fully confiscate Russian central bank assets.

European Context and Previous Hesitations

For an extended period, EU governments, including Germany, had resisted the direct use of frozen Russian funds. Their reluctance stemmed from worries about potential legal risks, the possibility of undermining confidence in the euro as a reserve currency, and fears of provoking further escalation from Moscow. However, recent developments, including concerns about the United States' long-term commitment to Kyiv and continued Russian aggression, have instilled a new sense of urgency within Europe.

The total amount of Russian state assets frozen in Europe is estimated to be around €200 billion, with a significant portion held by the Brussels-based financial institution Euroclear. While the EU has previously only utilized the interest accrued on these assets, the new proposal represents a more direct and substantial use of the principal.

Broader Implications and Next Steps

Chancellor Merz's endorsement signals a significant policy shift for Berlin, which is the EU's largest economy and Ukraine's second-largest military supporter. The proposal is expected to be a key topic at an upcoming informal EU summit in Copenhagen, where European leaders will discuss mechanisms to channel these funds to Ukraine. The initiative aims to provide a decisive lever to influence Russia's strategic calculations and bring an end to the conflict.